DBRS Confirms Ratings of Schooner Trust, Series 2006-5

DBRS Limited (DBRS) has today confirmed the ratings of Schooner Trust, Commercial Mortgage Pass-Through Certificates as follows:

-- Class A-1 at AAA (sf)
-- Class A-2 at AAA (sf)
-- Class B at AAA (sf)
-- Class C at AA (high) (sf)
-- Class D at A (high) (sf)
-- Class E at A (sf)
-- Class F at BBB (high) (sf)
-- Class G at BBB (sf)
-- Class H at BB (high) (sf)
-- Class J at BB (sf)
-- Class K at B (high) (sf)
-- Class L at B (low) (sf)
-- Class X-C at AAA (sf)

All classes have Stable trends. DBRS does not rate the first loss piece, Class M.

The rating confirmations reflect the performance of the loans remaining in the transaction and the increased credit enhancement to the bonds resulting from a collateral reduction of 37.4% since issuance. As of the March 2015 remittance report, 19 loans have paid out of the pool since issuance, and 72 loans remain in the transaction, all of which are scheduled to mature in 2015 and 2016. According to the most recent year-end financial reporting available, these loans have a weighted-average (WA) exit debt yield of 15.8%. Overall pool performance remains stable, as the WA debt service coverage ratio (DSCR) and WA debt yield are 1.6 times (x) and 15.3%, respectively. The transaction also benefits from defeasance collateral, as 11 loans, representing 15.2% of the current pool balance, are fully defeased.

DBRS maintains an investment-grade shadow rating on the Shoppers Drug Mart 2 loan, which represents 0.7% of the current pool balance. DBRS has today confirmed that the performance of the loan remains consistent with investment-grade loan characteristics.

There are no delinquent or specially serviced loans; however, 16 loans, representing 26.5% of the current pool balance, are on the servicer’s watchlist. The largest loan on the servicer’s watchlist is highlighted below.

The Lindsay Square loan (Prospectus ID#2, 5.2% of the current pool balance) is secured by a community mall located in Kawartha Lakes, Ontario, originally built in 1990 and renovated in 2005. The loan was added to the servicer’s watchlist after the largest tenant, Target (51.3% of the NRA), announced that it would be ceasing its operations across Canada and vacating all locations. According to the servicer, Target is expected to vacate the subject location in May 2015 ahead of its August 2017 lease expiration date. Target assumed the space and lease from Zellers, which formerly anchored the property. The servicer reports that Target may assign the lease, given the favourable base rental rate of $4.07 per square foot, and that three prospective tenants are interested in a portion of Target’s space; however, no decisions have been made at this time. Compounding the vacancy issues at the property is the loan’s upcoming scheduled maturity date in January 2016. DBRS has yet to receive YE2014 financials; however, according to the YE2013 operating statement analysis report, the DSCR was 1.14x, which is expected to decrease with the upcoming departure of Target. After Target vacates the property, the occupancy rate will decrease to 46.2%, with the largest tenant being Pharma Plus, which has a lease expiry at YE2015. DBRS modeled the loan with a lower cash flow to reflect the loss of Target’s rental revenue, which results in an elevated probability of default and loss profile for the loan.

DBRS continues to monitor this transaction in its Monthly CMBS Surveillance Report, with additional information on the DBRS viewpoint for this transaction. The March 2015 monthly surveillance report for this transaction will be published shortly. If you are interested in receiving this report, contact DBRS at info@dbrs.com.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodologies are CMBS Rating Methodology (January 2012) and CMBS North American CMBS Surveillance (January 2015), which can be found on our website under Methodologies.